Nepal Rastra Bank Tightens Governance and Shareholder Disclosure for Infrastructure Development Banks

The Nepal Rastra Bank (NRB), the central bank of Nepal, has significantly reinforced its regulatory framework for licensed Infrastructure Development Banks (IDBs) by amending its Integrated Directive, 2082. This strategic move aims to bolster transparency, enhance institutional governance, and safeguard investor interests within a crucial segment of the nation's financial sector. The new directive, issued by the Bank and Financial Institution Regulation Department, introduces stringent disclosure requirements for both existing and prospective officials, as well as major shareholders of IDBs.

Under the revised regulations, individuals appointed or nominated to key positions such as directors, chief executive officers (CEOs), and high-level management roles within IDBs, along with those currently serving, are now mandated to submit comprehensive personal details and a detailed self-declaration. This declaration must adhere to a new 10-point criterion established by the central bank, demanding full transparency on various critical aspects. These include strict adherence to prevailing laws, detailed family backgrounds, professional work experience, and a thorough assessment of their financial soundness.

Furthermore, the self-declaration requires individuals to explicitly state whether they have ever been involved in any criminal offenses, either in Nepal or abroad. It also mandates disclosure of any ongoing lawsuits, investigations, or administrative proceedings, as well as any outstanding revenue or government dues. Crucially, individuals must declare if they have ever been blacklisted for loan defaults, domestically or internationally. For Nepali citizens, an additional layer of scrutiny requires them to disclose any assets held outside Nepal, or if they are the beneficial owners or stakeholders of any entities abroad. The directive also places a strong emphasis on identifying and declaring any potential conflicts of interest, ensuring that the integrity of the IDB's operations remains uncompromised.

Beyond the leadership, the central bank has extended its rigorous oversight to include significant shareholders, aiming to prevent opaque ownership structures and potential abuses. New rules now govern the purchase and transfer of founder shares. Any individual or entity acquiring or transferring founder shares that cumulatively amount to 5% or more of the IDB's paid-up capital, or exceeding NPR 2.5 million (whichever is higher), must submit the same comprehensive 10-point self-declaration and family details as required from the bank's officials.

In a move to address complex corporate ownership structures, the directive specifies that if the party acquiring shares is a corporate entity, then any direct or indirect beneficial owner or stakeholder holding 15% or more of the shares in that investing corporate body must also provide their complete details and self-declaration. This provision is designed to pierce through layers of corporate ownership and identify the ultimate beneficial owners, thereby enhancing accountability and reducing risks associated with undisclosed control.

This comprehensive regulatory update, issued by Executive Director Ramu Paudel under the authority granted by Section 79 of the Nepal Rastra Bank Act, 2058, underscores the NRB's unwavering commitment to fostering a robust, transparent, and well-governed financial system. The directive also stipulates that any changes to the information provided in these declarations must be promptly updated and submitted to the central bank, ensuring continuous compliance. The new policy has been made effective immediately, with copies circulated to relevant bodies including the Ministry of Finance, the Governor's Office, and the Bank Supervision Department, signaling a unified approach to its implementation. This proactive measure is expected to significantly enhance investor confidence in Nepal's infrastructure development banking sector, promoting sustainable growth and stability.